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international businessTRANSCRIPT
https://aib.msu.edu/resources/exercisessimulations.asp
http://www.icmrindia.org/free%20resources/casestudies/freesample.htm
http://www.foreignexchange.org.uk/fx-guide/12/spot-exchange-rate-vs-forward-exchange-rates.html
http://www.hsbcnet.com/gbm/fwcalc-disp# (kalkulo)
http://www.bized.co.uk/virtual/vla/the_trade_balance/index.htm
Worksheet 1 - Worksheets - Economic Indicators - External Environment - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
External environment - Economic indicators
Worksheet 1 - Inflation
1. Go to the data section and find the figures for inflation for the last 15 years. You will need to look at
the following variable:
CZBH UK retail prices - all goods
Fill in the figures in the table below (or download them into a spreadsheet program).
Year
Inflation
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(3 Marks)
2. Outline the reasons why businesses are likely to be concerned about high levels of inflation.
(5 Marks)
3. What do you think may have caused the inflation in 1989/90? (N.B. This period was known as the
'Lawson Boom' as the Chancellor Nigel Lawson stimulated the economy with a series of tax cuts and
other measures. The relatively high inflation experienced in the UK between 1989 and 1991 was
associated with a series of tax cuts in budgets by the then Chancellor of the Exchequer, Nigel Lawson.)
Using Aggregate Demand and Aggregate Supply analysis assess how lower direct taxation of income
and lower interest rates would affect the performance of the economy.
(10 Marks)
4. Who is most likely to be disadvantaged in periods of high inflation? Examine the impact of inflation
on the following groups of people:
a) The elderly on a fixed income pension
b) Savers - when the rate of inflation is higher than the interest rate
c) A business in a highly competitive international market when inflation in the UK is at a higher level
than our major trading partners
(9 Marks)
5. Use the glossary to get definitions of cost-push and demand-pull inflation and make a note of them
below.
Cost-push inflation
Demand-pull inflation
(4 Marks)
6. Identify each of the following causes of inflation as either cost-push or demand-pull factors (Delete
the factor in bold that doesn't apply).
a. Increased trade union militancy pushes up average wage levels. cost-push/demand-pull
b. The exchange rate depreciates forcing up the price of raw materials bought from overseas.
cost-push/demand-pull
c. The government cuts the level of income tax leading to an increase in consumer spending.
cost-push/demand-pull
d. Increasing house prices make people feel wealthier and this pushes up retail sales. cost-
push/demand-pull
(8 Marks)
Total Marks = 39
Worksheet 2 - Unemployment
1. Go to the data section and find the figures for unemployment for the last 15 years. You will need to
look at the following variable:
BCJD Claimant count unemployment
Fill in the figures in the table below (or download them into a spreadsheet program).
Yea
r
Unemploymen
t
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(2 Marks)
2. Outline the effect that high unemployment is likely to have on the following areas of business
activity (explain your answer fully):
Costs
Demand
(6 Marks)
3. Assess the effects of a falling unemployment rate on the following types of business:
a) A company specialising in ICT network solutions to large business organisations
b) A building company specialising in the construction of brick built retirement apartments for the
elderly
c) A chain of fast food restaurants paying only the minimum wage to workers in a high labour turnover
industry
(12 Marks)
Total Marks = 20
Worksheet 3 - Worksheets - Economic Indicators - External Environment - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
External environment - Economic indicators
Worksheet 3 - Economic growth
1. Go to the data section and find the figures for economic growth for the last 15 years. To do this you
will need to look at the following variable:
ABMI GDP at constant prices
You will then need to calculate the percentage change in GDP each year as this is the rate of economic
growth. Fill in the figures in the table below (or download them into a spreadsheet program).
YearGDP at constant prices
Economic growth (%)
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(5 marks)
2. Use the axes below to plot the economic growth figures (or use a spreadsheet package graphing
function).
(2 Marks)
3. Using the figures and the chart, what evidence is there that the UK has experienced a regular cycle
of business activity in the time period given?
(6 Marks)
4. Identify five products where demand is likely to change significantly as the rate of economic growth
changes (i.e. they are sensitive to income changes).
a)
b)
c)
d)
e)
(5 Marks)
5. Identify five products where demand will hardly change at all as the rate of economic growth
changes (i.e. they are not sensitive to income changes).
a)
b)
c)
d)
e)
(5 Marks)
6. What strategies might you adopt, in the face of changing levels of economic activity, if you are a
firm selling products of this nature?
(5 Marks)
7. Assess the options available to the government to try to increase the rate of economic growth.
(12 Marks)
Total Marks = 40
POLITIKAT QEVERITARE
External environment - Government policy
Worksheet 1 - Fiscal policy - what, where and when?
The aim of this worksheet is to investigate the different types of policy that are available to a
government to manage the economy and the impact they may have on business.
1. Do a search in the In The News section to find recent examples of changes in fiscal policy that the
government has implemented.
N.B. You may like to try search terms like:
Fiscal policy
Taxation
Tax
Government expenditure
Income tax
Budget
You may get the best results when searching using more than one word if you check the 'Match your
phrase exactly?' box under the search button.
Note down the examples below:
a)
b)
(10 marks)
2. What may have been the objectives of the government in making the changes you have identified?
(5 Marks)
3. Delete the words in bold in the paragraph below as necessary so that it describes fiscal policy
accurately.
Fiscal policy is the manipulation of government expenditure and taxation / interest rates to
manage the level of demand in the economy. If the government feel that demand is too low, then they
might choose to put in place a reflationary / deflationary fiscal policy. This might
mean increasing / decreasing the level of income tax or perhaps increasing / decreasing the level
of spending taxes likeVAT / council tax. They might also choose to increase / decrease the level of
government expenditure. These policies would have the effect of raising the level of spending and
therefore demand in the economy, which should boost economic growth.
(6 Marks)
4. Evaluate how changes in the following taxes might affect businesses. Justify your answer.
(12 Marks)
5. Use the Treasury Budget site to find out the five largest areas that the government spends money
on and how much they spend. Fill the results in the table below:
Government spending on: Amount (£bn)
1.
2.
3.
4.
5.
(10 Marks)
Total Marks = 43
Worksheet 2 - Worksheets - Government Policy - External Environment - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
External environment - Government policy
Worksheet 2 - Monetary policy - what are they doing with our money?
1. Use the glossary to find a definition of monetary policy. Note this down below:
(2 Marks)
2. Who operates monetary policy in the UK?
(1 Mark)
3. Do a search in the In The News section to find recent examples of changes in monetary policy.
N.B. You may like to try search terms like:
MPC
Bank of England
Interest rates
Monetary policy
You may get the best results when searching using more than one word if you check the 'Match your
phrase exactly?' box under the search button.
Note down the examples below:
a)
(10 Marks)
4. Delete the words in bold in the paragraph below as necessary so that it describes the operation of
monetary policy accurately.
Monetary policy in the UK is operated by the Monetary Policy Committee of the Bank of
England / Treasury. The committee has eight / nine / ten members and of these three / four /
five are internal from the Bank of England / Treasuryand the other three / four / five are external
and are appointed by theGovernor of the Bank of England / Chancellor. The committee meet bi-
monthly / monthly / twice monthly to set the level of interest rates. They are aiming to meet an
inflation target of 2% / 2.5% / 3% and the rate of inflation is allowed to fluctuate either side of this
target by an amount of 1% / 1.5% / 2%. If they feel that inflation is likely to rise then they
will increase / decrease interest rates, but if they feel that inflation is likely to fall then they
may increase / decrease the interest rate.
(11 Marks)
5. What impact will an increase in interest rates have on businesses? You may find the theory section
helpful for this.
(6 Marks)
Total Marks = 30
Worksheet 3 - Worksheets - Government Policy - External Environment - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
External environment - Government policy
Worksheet 3 - Supply-side policy - increasing capacity?
1. Use the glossary to find a definition of supply-side policy. Note this down below:
(2 Marks)
2. Do a search in the In The News section to find recent examples of changes in supply-side policy that
the government has implemented.
N.B. You may like to try search terms like:
Education
Supply-side
You may get the best results when searching using more than one word if you check the 'Match your
phrase exactly?' box under the search button.
Note down the examples below:
a)
b)
(4 Marks)
Total Marks = 20
Questions - Sources of finance - Finance - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
Finance - Sources of finance
Questions - Case study - Biz Training
This section is based on the case study introduced in the Investment section. Let us remind ourselves
of the situation.
Scenario 1:
Biz Training Ltd. is considering buying a new online learning system to enable them to deliver the
training they do for their corporate clients. They are looking at three different systems and the cost of
each system is as follows:
System A
System B
System C
£120,000 £100,000 £85,000
Scenario 2:
Biz Training is contemplating relocating to new premises. Two possible sites are available with slightly
different features and aspects. The re-location will help them to be able to meet clients' needs more
effectively.
Location A:
Investment required for the move = £10 million
Location B:
Investment required for the move = £8 million
Biz Training is a private limited company formed ten years ago by a group of five ex-lecturers. The five
are the main shareholders but there is also a shareholder who was a local businessperson who initially
approached two of the five to run a training course for her company.
In each scenario, evaluate the sources of finance that might be available to Biz Training to
carry out the projects outlined. (20 Marks)
In doing this you need to be thinking of what types of finance may be available and what the
appropriateness of the finance available might be. Some of the marks available are going to be for
knowledge - i.e. for you recognising the range of finance sources available, some will be for application
- how well you link the knowledge of sources of finance to the actual scenario and case study given;
some will be for analysis - being able to break down the issues into key features and to identify the
impact of these points and the remainder will be for making a judgement about what, in the light of
your analysis, would be an appropriate source of finance in each case from the variety you have
looked at and why this is the most appropriate.
Remember, that there is no right answer to this type of question. You will need to try to present a
balanced account of the sources of finance and how appropriate they are to this type of company.
Case study - Investment - Finance - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
Finance - Investment
Case study
This section is a case study looking at investment appraisal and the different methods that are
available for assessing the merit of an investment project. You first need to read the information given
below and then have a look at theassociated questions.
Biz Training Ltd. is considering buying a new online learning system to enable them to deliver the
training they do for their corporate clients. They are looking at three different systems and the cost of
each system is as follows:
System A
System B
System C
£120,000 £100,000 £85,000
Each system has a range of functionality, but they do differ quite a bit in what they offer. While they
would all do the jobs that Biz Training are looking for, they would need the firm to run their systems
very differently and so the expected cash flows from each system are very different. The expected net
cash flows(income - expenses) for each system are as follows:
YearSystem A
System B
System C
1 £65,000 £45,000 £15,000
2 £55,000 £35,000 £30,000
3 £35,000 £35,000 £30,000
4 £15,000 £25,000 £40,000
5 £25,000 £15,000 £45,000
The firm is assuming a discount rate of 10% and this means that they need to apply a discount factor
as follows:
Year 1
0.909
Year 2
0.826
Year 3
0.751
Year 4
0.683
Year 5
0.621
Now have a go at the questions associated with this case study.
Questions - Case study - Investment - Finance - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
Finance - Investment
Case study - Questions
Before trying these questions make sure you have looked at the case material (it may perhaps be
worth printing it out to help with the questions). You can print out this worksheet to fill in all the
answers. You could also try the further taskwhich introduces some added complications.
Part 1 - Payback period
Use the expected net cash flow data in the case material to work out the payback period for each of
the systems. Work your answer out in years and months if necessary.
System A: Payback period __________ years __________ months
System B: Payback period __________ years __________ months
System C: Payback period __________ years __________ months
Part 2 - Average rate of return
Use the expected net cash flow data in the case material to work out the average rate of return for
each of the systems. Show your workings below.
Average rate of return - System A __________ %
Average rate of return - System B __________ %
Average rate of return - System C __________ %
Part 3 - Discounted cash flow
Use the expected net cash flow data in the case material to work out the net present value for each of
the systems. Show your workings below.
We have a given a table for you to use as the basis of your calculations:
Year
System APresent value - A
System B
Present value - B
System C
Present value - C
1 £65,000 £45,000 £15,000
2 £55,000 £35,000 £30,000
3 £35,000 £35,000 £30,000
4 £15,000 £25,000 £40,000
5 £25,000 £15,000 £45,000
Total present value
Less: capital cost £120,000 £100,000 £85,000
Net present value
The firm is assuming a discount rate of 10% and so the discount factors to use are:
Year 1
0.909
Year 2
0.826
Year 3
0.751
Year 4
0.683
Year 5
0.621
Part 4 - Which system is best?
Write a report for the firm to use giving recommendations/information as follows:
Which system they should use on the basis of each investment appraisal method
Which system would be best overall taking into account the results from all three methods
Non-financial issues they should be aware of when choosing their system
The possible limitations of investment appraisal
Further task - Case study - Investment - Finance - Business bank - Virtual Bank of Biz/ed
Business bank
External
Finance
Planning
Finance - Investment
Case study - Further task
Having looked at one example, let us now introduce some added complications. Consider the case
below.
Biz Training is contemplating relocating to new premises. Two possible sites are available with slightly
different features and aspects. The re-location will help them to be able to meet clients' needs more
effectively.
Location A:
Investment required for the move = £10 million
Anticipated Income Streams over a four year period:
Year 1
9.0 m
Year 2
11.5 m
Year 3
13.0 m
Year 4
15.0 m
The average contribution on the income streams = 40%
The overhead costs for this location are £400,000
The average cost for the loan capital for this project is 8%
Location B:
Investment required for the move = £8 million
Anticipated Income Streams over a four year period:
Year 1
10.0 m
Year 2
12.0 m
Year 3
14.0 m
Year 15.5 m
4
Average Contribution on the income streams = 50%
The overhead costs for this location are £350,000
The average cost for the loan capital for this project is 10%
Discount Tables:
8% 10%
End of Year 1
0.93 0.91
End of Year 2
0.86 0.83
End of Year 3
0.79 0.75
End of Year 4
0.73 0.68
Use Payback and Net Present Value to do an investment appraisal of the proposals.